LV Thạc sỹ_Solutions for the international payment development at the Agribank Bac Ninh

Subject:
Solutions for the international payment development at the Agribank – Bac Ninh
branch
INTRODUCTION

1. The necessity of the research
Under

the

conditions

of

globalization,

internationalization,

the

international economy is operating more and more strongly, each nation should
positively and actively join to obtain a favorable position in the international
labor allocation and commercial exchange. That means each nation needs to
develop strongly the external economic field.
For our nation, the external economic development is an objectively
obvious matter aiming at serving the cause of economic development and
construction of the nation under the orientation of Socialism. Particularly, in the
current period, we are still in the process of performing the nation
industrialization and modernization. Only through the activities external
economic activities may we create a necessary source of foreign currencies for
importing modern techniques, technologies, equipment, and simultaneously

promoting the nation potentials, utilizing foreign capital and technologies to
speed up the nation industrialization and modernization, shortening the gap of
backward, and make our economy step by step integrate with the regional and
international economies.
As an indispensable change link in the external economic activities, the
International Payment activity of each Bank has been getting more and more
important position and role. It’s considered as an instrument, a bridge in the
external economic relationship, economic and commercial relationship among
nations in the world.
International Payment is one of the important activities of the Bank, as it
is related to many other activities of the Bank such as credit activity for foreign
currencies, mobilization of capital in foreign currencies…
Though Agribank- Bac Ninh branch has just entered into performing
International Payment, it has attained some certain achievements. Nevertheless,
International Payment activity of the branch with a small scale and many


difficulties, the International Payment development is very necessary and
imperative. It not only create conditions for activities of export and import,
external economic activities, contribute to the performance of the renovation
policies by the Party and the State, but also is an important and obvious matter
decisive to the survival and development of the Bank in the market mechanism,
helping Agribank – Bac Ninh branch to soon integrate with the system of
domestic and international banks.
International Payment is really complicated and remains many
inadequacies in regimes, profession, as well as in the organization and
implementation. Thus, we need to research and work out remedies. Basing on the
said issues and as an official working in the Bank, I have chosen the thesis “The
International Payment development at the Agribank – Bac Ninh branch” for my
research.

2. Objectives of research
- To research basic theoretical issues on International Payment of
Commercial Bank
- To analyze and assess the International Payment development at the
Agribank– Bac Ninh branch.
- To propose solutions to the International Payment development at the
Agribank– Bac Ninh branch in time to come.
3. Object for and scope of research
- The object for research of this thesis is the International payment Bank at
the Agribank – Bac Ninh branch.
- Scope of research: the current status of the International Payment at the
Agribank – Bac Ninh branch in the period of 2006-2009
4. Methods of research
This thesis applies methods of systematization, statistics, comparison and
analysis to process information, data collected on the status of International
Payment to see clearly the resuls as well as the limitations of the Agribank – Bac
Ninh branch in this activity; at the same time, to research on the orientations,
strategies for the International Payment development at the branch in the coming
time; from then on, to work out some solutions, proposals for the International
Payment development at the branch.


5. Contribution of the research
- To systematize and clarify more some concepts, features, natures and
roles of International Payment ; on such basis, to clarify the issue on the
Internationa Payment development of Commercial Bank
- To analyze, assess the current status of International Payment
development at the Agribank – Bac Ninh branch in the period of 2007-2009; on
such basis, to highlight the obtained results and remaining inadequacies aiming at
helping the branch to draw experience and considerable matters in the

International Payment development.
- To propose some viewpoints and solutions for the International Payment
development at the Agribank – Bac Ninh branch, contributing to the sucess of the
strategy on turning Agribank into a multifunctional financial group of the
regional and international levels.
6. Structure of thesis
Besides the sections such as Introduction, Conclusion, this thesis includes
the following 3 chapters:
Chapter I: Basic theoritical issues on international payment
Chapter II: The current status of the international payment development
at the Agribank – Bac Ninh branch.
Chapter III: Solutions for the international payment development at the
Agribank – Bac Ninh branch.

TABLE OF CONTENTS

ACKNOWLEDGEMENT.................................................................................................4


ACKNOWLEDGEMENT
I would like to express my gratitude to all those who gave me the
possibility to complete this thesis. I want to thank all lecturers from Faculty of
International Education – National Economics University and Solvay Business
School –University of Brussel who have given me a lot of useful and interesting
knowledge of various subjects.
I am deeply indebted to my thesis tutor - Dr. Vu Dinh Hien from the
National Economics University whose help, stimulating suggestions and
encouragement helped me in all the time of research for and writing of this
thesis.
My colleagues from , Vietnam bank for agriculture and rural development,

Bacninh Branch supported me in my research work. I want to thank them for all
their help, support, interest and valuable hints.
Especially, I would like to give my special thanks to all of my classmates
and wish them a lot of success in the future.


EXECUTIVE SUMMARY
CHAPTER I: BASIC THEORETICAL ISSUES ON INTERNATIONAL
PAYMENT
• Definition of international payment
International payment is the performance of payment obligation in
currency arising from economic, commercial, financial, credit and non-trade
services relationships between organizations and individuals of different
countries to complete an operation process in the field of foreign trade by
different payment methods such as remittance, collection, letter of credit and
open account
• Factors affecting the development of international payment
- Subjective factors : Operation scale of the bank, bussiness strategy of the bank,
human management, technology, customers policy
- Objective factors : Economic environment, politic environment, and legal
environment.
CHAPTER II:
CURRENT STATUS OF THE INTERNATIONAL
PAYMENT DEVELOPMENT IN AGRIBANK- BACNINH
• Organization structure and operation network
On the first days the branch entered into operation (on 01 January 1997)
there were 282 officers and employees, up to now, over the past 10 years, there
has been a development of up to 396 officers and employees.
• Current status in the international payment development in Agribank–
Bac Ninh

Over the past 10 years of getting matured and development, international
payment activity has attained certain successes. Such achievements are showed
in the more and more extension of international payment methods, in revenue
and income collected from this kind of activities. In other words, to know how
international payment of the branch has developed, it’s required to base on the
following criteria:
-

Customers satisfaction on international payment activity has increased
day by day.

-

The prestige and trademark of the bank has been heightened.

-

The increase in the scale of international payment activity.


-

Finally is the quality of international payment activity is getting better.

• General consideration
- Attained results:
The achievements attained by Agribank – Bac Ninh branch from
international payment activity over the past time include:
-

International payment activity has been being improved and
developed.

-

International payment has contributed to increasing income for the
bank

-

International payment has contributed to heightening the prestige of
Agribank– Bac Ninh branch.

- Limitations and reasons
+ Limitations
Despite the above-mentioned results, international payment activity still can not
avoid such limitations as: Small scale, limited objects, monotonous international
payment methods, without many various and affluent payment methods.
+ Reasons
a/ Objective reasons
- The foreign trade activity is a complicated activity hiding many risks,
requiring the participants to not only understand the markets but also understand
international as well as international payment common practices.
- The export activity has not deserved its potential.
- The international economic management policy of Vietnam, though
being opened more and more, enabling international economic integration, but
written regulations on import, export, tariff, customs have not be stable with
many changes impacting on foreign trade activities.
b/ Subjective reasons
-

Non-diversified payment services

- Agribank Vietnam has just really moved itself recently, therefore, the
deployment of new products and services still meets many perplexes,
inadequacies, and has not caught up with actual situations and international
common practices.


- The administrative procedures in the foreign trade management of the
bank have had many redundancies sometimes wasting business opportunities of
Enterprises
CHAPTER III: SOLUTIONS FOR THE INTERNATIONAL PAYMENT
DEVELOPMENT AT AGRIBANK- BACNINH
- To implement appropriate customer policy
- To promote informatics technologies and modernize activities:
-To focus on training and improving qualification of officers in
international payment
-To promote the mobilization of capital in foreign currencies for the
international payment activity
• Some proposals
- Proposals to the Government and SBV:
+ On the legal environment for international payment and trading of foreign
currencies
+ On the policies on export and import
+ On the issuance of regime documents,
+ On the policy on the management of foreign currencies
- Proposals to Agribank- Vietnam
+ Agribank Vietnam should promptly adjust and supplement documents and
regimes in accordance with the laws and international common practices.

+ Agribank Vietnam should build up and develop the trade mark named Agribank
Vietnma to the international level, and been known to everyone as one of the
largest enterprises in the Top 200 of Vietnamese leading enterprises.


LIST OF ABBREVIATIONS

IT

: Information Technology

L/C

: Letter of credit

D/P:

: Collected from Document against payment

T/T:

: Collected telegraphic Transfer

SBV

: State Bank of Vietnam

Agribank

: Viet Nam Bank for Agriculture and Rural Development

JSCB

: Joint Stock Commercial Bank

SWIFT

: Society of World Interbank Financial Telecommunications

TGD

: General Director

UCP

: Uniform Customs and Practice for Documentary Credits

IPCAS:

: Intra- Bank payment and customer accounting system


LIST OF FIGURES, TABLES AND CHARTS

ACKNOWLEDGEMENT.................................................................................................4
ACKNOWLEDGEMENT.................................................................................................4


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The International Payment development at the Agribank – Bac Ninh Branch

CHAPTER I
BASIC THEORETICAL ISSUES ON
INTERNATIONAL PAYMENT
I.1 Overview on international payment
I.1.1 Definition of international payment
In the trend of current globalization, there is rarely a nation producing
itself all the things it needs. Each nation has its comparative advanges in some
kinds of goods compared with other nations and it shall produces these kinds of
goods in exchange for other kinds of their disadvantage. The exchange exceeding
the borders of a nation constitutes the export and import activities; and the result
of these activities is the payment between subjects from different nations. On
such basis, International Payment
profession is formulated, in which
Commercial Bank act as intermediary bridge.
International Payment is the performance of obligations in payment of
currencies arising out of economic, commercial, financial, credit relationships
and non-trade services between organizations, individuals from different nations
to finish an operation process in the external economic field by different payment
methods such as remittance/telegraphic transfer, collection, letter of credit... It’s
shown from the above concept that, International Payment serves two fields of
economic and non-economic activities. In reality, there is often the interference
between these two fields. International Payment is formed on the basis of foreign
trade activities and server mainly foreign trade activities, thus, they devide
International Payment into two clear fields: foreign trade payment and nonforeign-trade payment.
Foreign trade payment is the performance of payment on the basis of
export and import goods and commercial services provided to foreign buyers at


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The International Payment development at the Agribank – Bac Ninh Branch

the prices in the international market. The basis on which the parties perform
purchase and sale and payment to each other is a foreign trade contract.
Non-foreign-trade payment is the performance of payment in no relation
with export and import goods as well as labor provision to foreign nations,
meaning payment activities without marketability. Such payment is made for
expenses of overseas national diplomatic authorities, expenses for traveling,
accommodation of state delegations, organization and individuals; sources of
gifts and souvenirs, allowances by foreign individuals to domestic individuals,
funds by a foreign charity organization to domestic organizations, communities...
As a whole, foreign trade activity has some feature basically different to
domestic trade activity, including:
- Buyers and sellers from two different nations or nationalities.
- The currency used in payment may be that of one of two nations and of
a third nation.
- Goods sold or purchased are often moved across the borders between
nations, from the nation of the seller to the nation of the buyer.
- The laws governing the contractual relationship of purchase, sale and
payment contain international factors: the control of foreign exchanges, exchange
rates and policies restricting foreign trade by the Government.
I.1.2 Roles of international payment
- International Payment for the economy: In the trend of integration into
the international economy, every nation pays a great attention to the external
economic development. International payment is the bridge between domestic
and foreign economies, useful to push up the activities of goods and service
export and import, foreign investment, overseas national inward remittance and
other financial and international credit relationships. International payment is
more and more confirmed in the national economy in general and the external
economic activity in particular. Especially, in the current context, every nation

regards external economy as a leading priority, consider the external economic
activities as the indispensable way in the economic development strategy of each
nation.
International Payment is an important phase in the process of goods and
services purchase and sale between organizations, individuals from different
nations. But for International Payment, external economic activity shall be
difficult to exist and develop. If International Payment is performed quickly,


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The International Payment development at the Agribank – Bac Ninh Branch

safely, efficiently it shall solve the relationship of goods – currency circulation
between buyers and sellers smoothly and efficiently.
- International Payment for the business operations of Commercial Bank :
International Payment activity helps Commercial Bank to attract many more
customers with demand for payment exceeding the borders of a nation, creating
competitive advantage in the market economy. In addition, International Payment
enable Bank to perfect and diversify business services such as foreign currency
business, guarantee profession and other services aiming at meeting better and
better the demands of the economy, establishing trust in customers, and on such
basis, heightening the prestige for customers
Due to the International Payment promotion, Commercial Bank have
developed the international credit activity, financed for export and import as well
as increase sources of capital mobilization due to utilizing the capital resource
from customers deposits upon their participation into International Payment or
upon the flow of foreign currencies through the way of overseas national inward
remittance or payment of export goods.
International Payment helps Commercial Bank to raise their prestige and
advantages in the international market; so that Commercial Bank may exploit

sponsorship capital resources from foreign bank and the international financial
market to domestic meet credit demand, collect many payment service fees such
as L/C payment fees, collection fees, remittance fees, overseas national currency
remittance fees, guarantee fees... contributing a considerable part into the
revenue and profit of the bank
- International Payment for export and import enterprises: International
Payment is the final phase in the performance of a foreign trade contract; it
closes a process of goods and service purchase and sale. This is a complicated
profession, hiding many risks beyond expectation, so, even when any two parties
have agreed on prices, payment methods, payment time, risks still may happen
due to objective reasons or Force Majeure events. Accordingly, a requirement to
International Payment is to ensure the security for foreign trade contracts,
collecting and receiving goods fully in accordance with the provisions under such
contracts.
Through International Payment activity with foreign partners, enterprises
of conditional export have conditions to catch information on the market, know
more about partners; on such basis, to balance potentials, set out appropriate
business strategies, preventing and limiting risks.


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The International Payment development at the Agribank – Bac Ninh Branch

As International Payment is getting more development, International
Payment is required to renovate in accordance with International Trade. Thus, the
research of International Payment and related issues like currencies, exchange
rates... is always the serious concerns of economist, bank and export and import
enterprises
I.1.3 Forms of international payment
Forms or methods of International Payment are the whole contents,

conditions and ways for Bank to perform their payment obligations between
individuals, organizations from different nations and territories.
The selection of payment methods proper with each trade affair,
relationship between contractual parties is a factor contributing to limit risks in
International Payment. Current payment methods: letter of credit, remittance,
collection and opening account.
I.1.3.1 Letter of credit
a/ Definition of Letter of credit
A letter of credit is an agreement, of which at the request by a Customer
(L/C applicant), a Bank shall issue a letter, called as L/C (Letter of Credit)
thereby this Bank (called as L/C issuing bank ) commits to pay to or accept draft
of a third party (L/C beneficiary) agaist the presentation to Issued Bank a full set
of payment documents in accordance with the terms and conditions provided in
the L/C.
According to Article 2, UCP 600 “A letter of credit is any agreement,
whether described or called whatsoever, indicating a firm and irrevocable
confirmation by Issuing Bank on the payment agaist proper presentation”.
b/ Professional procedure of a letter of credit:
(2)
Issuing Bank
L/C

(8)

(7)

(1)

Advising Bank
L/C

(5)
(6)

(6)

(5) (3)

(4)
Importer

Exporter


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The International Payment development at the Agribank – Bac Ninh Branch
Diagram 1.1: Professional procedure of a L/C

(1) An importer applies for a L/C issuance at its Bank requiring for the
opening of a letter of credit in favor of an exporter.
(2) Based on the application for L/C issuance, the L/C issuing bank shall
issue a letter of credit and through its agent bank in the country of the exporter
notify of the L/C issuance and transfer the letter of credit to the exporter.
(3) Upon the receipt of this notice, the advising bank shall notify the
exporter of the entire contents on such L/C opening; and upon the receipt of the
original L/C, the issuing bank shall immediately transfer to the exporter.
(4) The exporter shall conduct the delivery if it accept such L/C, otherwise
it shall request the importer through the L/C issuing bank to amend, supplement
the L/C in accordance with the contract.
(5) After the delivery, the exporter shall prepare a full set of documents

under the requirements of the L/C, present it through the Advising Bank to L/C
Issuing Bank as a payment request.
(6) The L/C Issuing Bank shall examine the set of documents and make
payment to the exporter in case of finding such set of documents to be in
accordance with the L/C. Otherwise, the Bank shall refuse to pay and return the
whole set of documents to the exporter.
(7) The L/C Issuing Bank shall ask for payment to the importer and
transfer the whole set of documents to the importer upon its receipt of document
or acceptance of payment.
(8) The importer shall examine the documents and make payment in case
of conformity with the L/C; otherwise the importer shall be entitled to refuse to
pay.
c/ Some considerable points in using L/C:
- The popular international legal document of letter is “The Uniform
Custom and Practice for Documentary Credits, No. 600, amended version of
2007” by the International Chamber of Commerce (abbreviated as UCP 600).
This written rule is legally optional; meaning in order to apply it, the applying
parties shall mutually agree on and refer it in L/C. Now in our nation,
Commercial Bank and export and import business units have agreed on the use of
this written Rule as a legal document governing kinds of letter of credit applied
in International Payment between Vietnam and other nations.
- Characteristics of L/C transaction:


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The International Payment development at the Agribank – Bac Ninh Branch

+ L/C is a two party economic contract: Many people are confused to say
that, L/C is a three party economic contract, including: L/C applicant, Issuing
Bank and the beneficiary. Actually, L/C is an independent economic contract

with only two parties including the Issuing Bank and the beneficiary. All
requirements and instructions of the L/C applicant are represented by the Issuing
Bank, therefore, the official voice of the L/C applicant is not shown in L/C. This
understanding is very important; as many exporters think that L/C belongs to
them and the Bank just provide such service for fee; thus, only the agreements
between the importer and the exporter are important, then the acceptance by the
Bank depends only on the factor of payment fee. Let’s image that, a L/C
amendment has been agreed by the exporter and the importer, but without the
acceptance thereof by the Bank, would such acceptance become valid?
+ L/C is independent to the basic contract and the goods: This is
confirmed in the versions of UCP. Essentially, L/C is a transaction totally
independent to the foreign trade contract or any other contract which is the basis
to establish L/C transaction. In all circumstances, the Bank is not related to or
bound on such contract, even when L/C includes any references to this contract.
Accordingly, a L/C has important characteristics, it forms on the basis of a
foreign trade contract, but after being established, it turns out to be independent
to this contract. Once a L/C has been opened and accepted by the parties,
whether the contents of such L/C are in accordance with the contract or not, it
shall not change the rights and obligations of the parties relating to it.
Some importers don’t understand or neglect this rule, upon the occurrence
in the basic contract, turn back to claim or prevent the Bank from payment
against an appropriate set of documents. This is unallowable.
In reality, a importer may use L/C as a provisional instrument to embody,
elaborate or supplement terms omitted by commercial contracts; additionally, to
correct, amend unfavorable contents in the signed foreign trade contracts.
Nevertheless, this may only help to avoid from opening a L/C in favor of the
exporter, but the exporter may take the importer to the court basing on the terms
of the commercial contract.
- A L/C is transacted only be documents and paid only on the basis of
documents; the Bank bases only on inspecting presented documents to determine

if such documents on their surfaces may constitute a proper presentation or not.
Thus, documents in L/C transaction have a special importance, being the
evidence on the delivery by the seller, representing for the goods value delivered;
therefore, they become the basis for the Bank to pay, for the importer to


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The International Payment development at the Agribank – Bac Ninh Branch

reimburse the Bank, and the shipping documents for the importer… The
possibility of collecting payments depends only on the proper presentation of
documents, at the same time, the Bank also make payment against proper
documents. It means the Bank are not possible for the truth of the goods
represented by any documents.
When presented documents are proper, a Issuing Bank shall make
unconditional payment to the exporter, despite the fact that the goods may not be
delivered or delivered fully in accordance with what written on documents. Thus,
L/C payment can not base on the real status of the goods, if the goods do not
match with the documents, the seller and the buyer shall mutually resolve on the
basis of the sales contract, without any relation with the Bank. Only in case of
improper documents, and the Bank still make payment to the exporter, the Bank
shall take all responsibilities therefore, as the importer shall have the right to
refuse to pay back to the Bank.
- The content of a L/C and the set of documents mush not be contradict to
each other: As the transaction bases only on documents and the payment bases
only on documents, so the requirement of strict compliance by the documents is
the basic principle of L/C transaction. For payment, the exporter must present a
proper set of documents, comply strictly with the terms and conditions of L/C.
- L/C is an instrument of payment for restricting risks or an instrument for
refusing payment and doing fraudulence? In terms of being an instrument of

payment and precaution against risks to the exporter and the importer, L/C has an
outstanding advantage compared with other payment methods. Thus this method
has existed and developed as it’s seen today. However, in the reality of
international trade, due to changes of the market, prices of goods… L/C may be
availed to become an instrument for refusing the delivery of goods, the payment
and an instrument for cheating and doing fraudulence.
From the virtue of L/C is just to transact by documents and the
examination of documents bases only on the surface of the documents without
considering the features “inside the documents”. For this reason, there are not
few disputes arising due to the strict compliance of the documents. In reality, the
preparation of a perfect set of documents without any errors is not easy;
furthermore, the gap between the compliance and “error” is really slim,
depending on custom, qualification, viewpoints, motivation of related parties.
Additionally, due to the independence of L/C to the basic contract, a fraudulent
person may not perform the delivery or perform an improper delivery, while he


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The International Payment development at the Agribank – Bac Ninh Branch

still prepares a proper set of documents for payment. There have been many
circumstances like that in the real world.
I.1.3.2 Remittance
a/ Definition
To be a payment method in which a customer (the remitter) requires a
Bank to serve him to remit a certain amount to another person (the beneficiary) at
a certain address and within a certain time.
It’s possible to say that, remittance is a simple payment method, in which
the remitter and the beneficiary perform payment directly to each other. The
Bank during the remittance plays only a role as an intermediate under

authorization for commission and without being bound to any responsibilities for
the remitter and the beneficiary.
b/ Sequence of profession performance:
Payment Bank

Remitting Bank
(3)

(2)

(4)
(5)

Remitter

Beneficiary
(1)

Chart 1.2: Professional procedure for remittance

- (1) This step is only performed in the existence of a foreign trade
contract. After signing the foreign trade contract, the exporter shall perform the
delivery, simultaneously send to the importer a full set of documents (invoice,
B/L…)
- (2) After examining the set of documents (or goods), if the importer
decides to pay, the importer shall prepare a remittance request and send to the
Bank for serving him.
- (3) After examining the documents and remittance documents as
stipulated, in case of compliance and eligibility for payment, the Bank of the
importer shall perform the remittance.

- (4) The remittance Bank orders the Bank which serves the importer to
pay the beneficiary.
- (5) The remittance Bank shall entry credit to the account of the
beneficiary and send written notice to the beneficiary.


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The International Payment development at the Agribank – Bac Ninh Branch

c/ Advantages, disadvantages of remittance:
+ Advantages:
For the remitter: normally, in foreign trade, remittance shall be performed
after the completion of goods delivery, thus the importer may avail on the capital
of the exporter as he doesn’t have to pay immediately. Besides, the expenses for
remittance are always cheaper than those for other payment methods like letter of
credit.
For the beneficiary: As well as the remitter, the beneficiary shall pay fewer
expenses, less time and shorter time for procedure than in other payment methods
due to saving work and money.
+ Disadvantages: May result in the appropriation of capital between the
two parties: the buyer and the seller.
I.1.3.3 Collection
a/ Definition
Collection is a payment method, in which the seller (the exporter) after his
delivery of goods or provision of services, entrust the Bank to serve him in
presenting the set of documents through the collection Bank of the buyer
(importer) for payment, acceptance of draft or acceptance of other terms and
conditions.
In order to make collection into an efficient payment method, the buyer
and the seller must agree on details of payment terms as stipulated in the foreign

trade contract. On the basis of this agreement, the seller perform the collection
through the Bank serving him.
The legal document governing collection is ICC Uniform Rules for
Collections effective from June 1995 (abbreviated as URC 522). When URC 522
is referred to the Collection order, all the related parties shall perform their rights
and obligations properly under these Rules. However, if the parties otherwise
agree on the Rules or the Rules are contradict to national laws, the Rule shall not
be applied; it means that the related parties shall have the right to agree
particularly on the collection; simultaneously national laws must always be
respected beyond these Rules. This happens because URC 522 is only optional, it
comes into effect upon the agreement of application by the parties and being
referred in collection. Thus, in application of URC 522, the related parties always
have to consider about the legal features of the nations relating to the collection.


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The International Payment development at the Agribank – Bac Ninh Branch

Collection includes two kinds: Clean collection and documentary
collection
b/ Clean collection: To be the method in which a seller entrust the Bank to
collect money for him from a buyer basing on the draft prepared by hime, and
directly send shipping documents to the buyer, not through the Bank.
- The performance sequence of clean collection profession include the
following steps:
+ The seller, after dispatching the goods and shipping documents to the
buyer, prepares a draft asking for money from the buyer and entrust his Bank to
collect such money for him by a collection order.
+ The Bank serving the seller send a trust instrument of collection against
a draft to the Bank representing him in the country of the buyer for the collection

of money for the seller.
+ The agent Bank requires the buyer pay for the draft (in case of at sigh
draft) or accept to pay for the draft (in case of deffered draft).
+ The agent Bank remits the money collected to the seller, in case of
acceptance against draft, the Bank keeps the draft and forward it to the seller.
Upon the due date, the Bank shall ask for many from the buyer and make
payment to the seller.
The following is the chart for the professional procedure of clean
collection:
(2)

Document forwarding
Bank
(1)

(4)

(4)
(4)

Seller

Collection and
Document presentation
NH

(3)
Send goods
and
documents

Buyer

Chart 1.3: Professional procedure for clean collection

(1) Request for collection against a draft
(2, 3) Ask for money from the buyer
(4) The buyer pay the seller
- Cases for the application of clean collection:


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The International Payment development at the Agribank – Bac Ninh Branch

+ The seller and the buyer believe in each other and have joint venture
relationship between parent company, subsidiaries or branches.
+ For payment of services relating to the goods export, as this payment
does not need attached documents such as transport fee invoices/receipts,
insurance policies, penalty records, compensation records…
The clean collection is not applied much in trade payment, as it can not
protect the rights of the sellers, in which the taking of delivery by the buyer is
entirely separate from the payment phase, thus, the buyer may take the delivery
without payment or late payment. For the buyer, the application of this method
also brings him risks, as if the draft comes earlier than the documents, the buyer
shall have to pay immediately without knowing about the compliance with the
contract of the delivery buy the seller.
c/ Documentary collection: To be a payment method, in which the
documents sent for collection include: either commercial documents with
financial documents; or only commercial documents without financial documents
enclosed. The collection Bank shall deliver the set of documents to the importer

only after the importer has made payment or accepted to pay for the draft.
- The following is the chart for the professional procedure of documentary
collection:
(2)

Document forwarding
Bank
(1)

(4)
Seller

(4)
(4)

Collection and
Document presentation
NH

(3)
Send goods
and
documents

Buyer

Chart 1.4: Professional procedure for documentary collection

This procedure is also like that of clean collection, just different in the
phase (1) to prepare a set of documents and send to the Bank for collection. The

set of documents includes draft and shipping documents attached, in the phase
(3) the agent Bank deliver the shipping documents to the buyer if the buyer
makes payment or accept to pay for the draft.
In documentary collection, the seller entrust the Bank, apart from the
collection, to control the shipping documents to the buyer. This is the basic


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The International Payment development at the Agribank – Bac Ninh Branch

difference between documentary collection and clean collection. With this way of
document control, the rights of the seller are more secured.
- The seller through the Bank may control only the right of determining
the goods, but can not control the payment of the buyer. The buyer may extend
the payment by temporarily not receiving the documents or not performing
payment, when the market is adverse to them.
- In this method, the Bank plays only the role of an intermediate for
collection, without responsibility for the payment of the buyer.
d/ Issues of using collection:
- The popular legal document of the collection method is ICC Uniform
Rules for Collection, 1995 Revision No. 522 by the International Chamber of
Commerce.
These Rules are optional so to apply it, the buyer and the seller must
agree and stipulate on it in the contract.
- The seller must prepare a collection order and sent to the Bank
representing for him for collection. In such collection order, the seller must set
out terms of collections which must be accepted by the Bank. This is a specific
legal document governing the relationship between the seller and the Bank
serving the seller.
The contents of such collection order often include the following

conditions: payment terms of either D/A or D/P. In the term of D/P (Documentary
against payment: to make payment in exchange for the documents), the buyer
shall receive documents from the Bank only by paying for the draft. In the term
of D/A (Documentary against acceptance: to accept payment in exchange for the
documents), the buyer shall receive documents from the Bank only by accepting
to make payment.
I.1.3.4 Open-account
a/ Definition: To be a payment method, in which the seller opens an
account (or a book) to entry debit of the buyer after the seller has completed
delivery of goods or services, until the due date, the buyer shall pay the seller.
b/ Characteristics of open-account method:
- There is no participation of Bank with the function of opening an
account and performing payment. There are only two parties participating in the
payment including the exporter and the importer.


13
The International Payment development at the Agribank – Bac Ninh Branch

- Just open a unilateral account, not open a bilateral account. If the
exporter opens an account to entry debit, this account is only for monitoring, not
valid for payment.
- The two parties must really believe in each other.
- Apply mainly in barter sale or for series of shipments performed
regularly and periodically in a certain time.
- Goods prices in this method are often higher than those in at sigh
payment method as it takes into account for interest rates and credit risks.
Currently, England or EU countries usually apply this payment method
as between these countries there is a similarity of culture, customs in business,
laws, and customers have traditional, regular and long-term business relationship

on the basis of mutual belief.
c/ Professional procedure:
Bank of the seller

Bank of the buyer
(3)

(3)

(3)
Seller

(2)

Buyer

(1)
Chart 1.5: Professional procedure for documentary collection

(1) Delivery of goods or services along with sending goods documents
(2) Direct debit notification
(3) The buyer apply remittance to pay on due date
d/ Cases for application
- Usually applied for domestic payment
- The seller and the buyer really trust each other
- Applied for barter sales, or for series of shipments performed regularly
and periodically in a certain time (6 months, 1 year).
- This method is favorable only to the buyer
- Applied for payment of consignment payment in foreign countries.

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The International Payment development at the Agribank – Bac Ninh Branch

- Applied for payment of non-trade such as: freight charges, insurance
premium, commission in brokerage, assignation, and interest from loans and
profits from investment.
c/ The considerable points in application are as follows:
- Agreed stipulations on currencies written on account.
- Basis for debit entry of the seller is usually commercial invoice.
- Basis for debit acceptance of the buyer, either is the value of invoices, or
the results of taking delivery in places of delivery.
- Remittance method either by mail or by telegraph must be agreed
between the parties.
- The goods prices in this open-account method are often higher than
those in at sight payment method. This difference is the interest arising out of the
open-account amount within duration equal to period payment period under the
interest rate agreed by the buyer.
I.2 Development of international payment of commercial banks
I.2.1 Concept on the development of international payment of commercial
banks
To understand clearly what International Payment is, it’s required to start
from the concept of development. Under the Vietnamese polytechnic dictionary,
development is deemed as to change or make changes from little to much,
narrow to large, low to high, simple to complex.
This concept shows that in order to refer to the development of a
specific object is to indicate the increase both in quality and quantity of such
object.
For example, talking about the economic development is understood as
talking about the process of increase in all aspects of the economy. Economic

development is considered as the process of changing both in quantity and
quality; it is the close combination of the completion process of the two issues in
economy and society of each nation.
So the concept of International Payment development is the increase in
quantity and quality of this activity. International Payment development in
quantity show that the payment of currency obligations arising in relation with
economic, commercial relationships and other relationships among different
organizations, companies, and subjects of different countries is increasing. This
increase is shown through number of items, amounts of every period higher than


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The International Payment development at the Agribank – Bac Ninh Branch

those of the previous period, of every year higher than those of the previous year.
In this meaning, International Payment development is almost the extension of
operation scale, the development in width. However, International Payment
development in width can not prove the quality and safety of this operation. Due
to the characteristic of International Payment is related to foreign factors, the rate
of risks is very high. So, besides the extension of operation scale, Commercial
Bank can not omit the quality. And it’s the International Payment development in
quality. To upgrade the quality of International Payment, Commercial Bank
should have many efficient measures; it’s possible to list some of such measures
as follows:
+ Establish agent Bank in countries, regions, territories in the world and
consider this is an important change link helping domestic Bank to research
clearly customers in the countries where agent Bank are located.
+ Establish a procedure of International Payment in accordance with
domestic laws and international custom and laws. This helps the system to
operate more smoothly, more professionally and thus restricts risks.

+ There is another so important factor is human resource. It’s required to
allocate and assign tasks to officers in International Payment profession who are
qualified in specialized profession and foreign languages besides general
standards.
Nowadays, International Payment is a service becoming important to
Commercial Bank. It brings considerable revenue source not only in absolute
quantity but also in proportion. International Payment is also an important chain
link in connecting and pushing up the development of other business operations
of Bank such as foreign currency business, bank guarantees, overseas national
currency remittance, increase of capital mobilization source, especially for
capital in foreign currencies.
The International Payment perfection and development have a very
important role for activities of Bank. It is not only a pure payment service but
also the central indispensable phase in the line of business operation,
supplementing and supporting other business activities of Bank.
Today, due to the strong, comfortable, safe and efficient development of
International Bank, most of International Payment activities take place through
Bank system, at the same time, International Bank has developed under a
uniform custom on the international scale through different International Bank
methods.


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The International Payment development at the Agribank – Bac Ninh Branch

I.2.2 Measuring of the development of international payment
I.2.2.1 Measuring of the Qualitative
Reflect International Payment development by qualitative criteria
represented through many criteria, including but not limited to the followings:
- Customers satisfaction: Customers satisfaction for each product,

service of Bank is increasing, then the prestige, trademark of Bank is increased
more and more. To satisfy customers and heighten the prestige of domestic and
international commercial bank, first of all, International Payment professions
must be diversified and affluent. Besides, Commercial Bank officers should also
understand deeply in foreign trade field, so that they can help customers to
restrict risks, losses. In general, to bring customers the gratification and
satisfaction, Bank must perform well the issues as follows:
+ Customers care policy: The policy of each Bank to develop
International Payment during the period of harsh competition between
Commercial Bank at present must be really attractive to attract customers to use
services of such Bank. International payment policy of a Bank is considered to be
attractive when it focuses enough issues such as the ability to provide exportimport credit services, the ability to provide sources of foreign currencies in need
of customers, International Payment performance fees, deposit rate for L/C
issuance… Normally, a enterprise with International Payment activities at a
commercial bank always have demand to be financed. A commercial bank
providing enough capital in foreign currencies at the request by customers even
when the foreign exchange market is fluctuating and in short of foreign exchange
surely can build up in customers with belief and confidence. Now, due to the
high difficulty in buying USD, the import of importing enterprises has really
fallen into difficulty. In the mean time, exporting enterprises are having a
behavior of “speculating” USD, waiting till USD price become higher to sell out
for profit. Facing this situation, Commercial Bank wait for the stronger
interference from SBV indeed to stabilize the foreign exchange market, from
then on, to meet demands for USD of importing enterprises well.
On the deposit rate for L/C issuance, Commercial Bank often have two
different rates, a low rate for traditional customers and a high rate applied to
current customers. That is also a good customer care policy needed to be
promoted. As traditional customer are ones having regular transactions and good
credit relationship with each Bank, so high rate of deposit shall result in capital
stagnation affecting the financial status of customers and consequently customers

are also affected. A Commercial Bank having conducted well the works of